Mexico is the largest importer of US refined products, although Pemex is still the largest fuel wholesaler because of its control over fuel terminals and pipelines. New infrastructure in Mexico will allow US refiners to export gasoline and diesel without depending on Pemex’s intermediation.

Foreign companies are focusing on supplying Mexico’s central region, the country’s biggest fuel market, where combined gasoline, diesel and jet fuel demand in November averaged 346,500 b/d, according to Mexico’s Energy Secretariat.

Valero, ExxonMobil, Glencore, Total and Repsol have announced new infrastructure projects to supply this market. Shell and BP have also established retail stations in Central Mexico, but have not announced infrastructure plans yet.

Mexico is an attractive market for foreign refiners. While fuel demand is expected to plateau or fall in developed nations, it will grow by 25% to 1.04 million b/d over the next decade in Mexico.

PEMEX to Lose Market Share
Total and Repsol announced last week that they are anchor clients with KKR-backed Monterra Energy’s Tuxpan International Fluids Terminal (TIFT). The terminal will begin operations in Q3 2020 with an initial storage capacity of 200,000 barrels, expandable up to 2 million barrels.

Central Mexico is supplied by Pemex’s 315,000 b/d Tula refinery. However, years of insufficient maintenance and upgrades have left central Mexico depending on imports for nearly 80% of all its fuel needs.

Lack of infrastructure has been a significant barrier for new fuel wholesale marketers from entering Mexico against Pemex. Despite Mexico began allowing fuel imports in 2016, new competitors have gained a limited market share with 7% of gasoline and 20% of diesel imports, Mexican government data show.

Mexico’s fuel supply has also been at risk due to Pemex’s limited infrastructure. The country has historically suffered from sporadic fuel shortages during the year-end Holiday’s high-driving season. Mexico only has enough inventories for one to three days of gasoline demand.

In January of this year, the shutdown of pipelines by Mexican President Andres Manuel Lopez Obrador to fight fuel theft led to fuel shortages in 70% of retail stations in Central and Western Mexico at a point, the country’s consumer protection agency, PROFECO, reported.

Seeking a Competitive Supply
Companies gained a footing in Mexico by using unit trains to supply the country’s Northern, Western and Central regions. However, developing new port terminals will make US refiners more competitive as using trains is three times costlier than marine vessels to move fuel.

Valero Energy is going to become Pemex’s first major foreign competitors as it will move fuel into central Mexico in H2 2019 via IEnova’s new 2.1-million-barrel Marine terminal in the Port of Veracruz.

Glencore is developing a new terminal in Tuxpan, which is expected to be operational in Q3 2020.

Building new marine terminals is the primary piece in a larger logistic puzzle. Some companies still have to announce how they will transport and store fuel near large cities and demand centers.

For example, Tuxpan lacks rail interconnectivity and companies will require backing new pipelines to move fuel competitively into Mexico’s central region and not depend on expensive fuel trucking.

To date, ExxonMobil has been the only company that has made public it is anchoring a new pipeline system to connect Tuxpan with Central Mexico, which is expected to be operational in 2020.

The US energy giant has contracted INVEX’s Tajin pipeline system, which will have a capacity to move up to 330,000 b/d from a new marine terminal in Tuxpan into Tula, Hidalgo.

Meanwhile, Valero is going to move product using trains into IEnova’s terminals in Puebla and Mexico City.

Mexico’s Key Bajio Region
Conquering Mexico’s Central Region through an efficient logistic system will give companies a foundation to expand into Mexico’s Western Central region, also known as the Bajio.

This region consumed a total of 241,000 b/d of gasoline, diesel and jet fuel in November, according to government data.

The Bajio’s demand gives majors the anchorage needed to expand any supply systems they set in Central Mexico.

Currently, ExxonMobil and Total are the only foreign companies supplying Western Central Mexico. Both use unit train deliveries to move fuel into the Bajio region.

However, to outcompete Pemex in this region, new fuel wholesale marketers will have to import fuel through a marine terminal like Tuxpan or Manzanillo, Colima State, or Mazatlan, Sinaloa, in the Pacific Coast.

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